TECHNICAL INDICATORS

IBKC At A Critical Level?

On the daily chart in Figure 1, you can see that the price of Iberiabank Corp (IBKC) began declining in mid-March 2014. A shooting star candlestick formation (yellow mark) initiated a bearish reversal rally for IBKC. An overheated uptrend indicated by the average directional index (ADX)(14) and the highly overbought full stochastic(14,3,3) confirmed the bearish reversal formation. The fresh descending rally gradually broke through the support of the 50-day moving average (MA), strengthening the short-term bearish hold on the stock. Eventually, the uptrend reversed, and a new downtrend started, as you can see in Figure 1.

The stochastic oscillator plunged into an oversold region, and the moving average convergence/divergence (MACD)(12,2,6,9) turned negative after the bearish crossover in positive territory. All these bearish indications pulled the price rally toward the 200-day MA support. IBKC formed a rounded bottom near this long-term MA support, resulting in a pullback rally. This bottom formation is a bullish reversal, and the breakout occurs above the moving average resistance. In Figure 1, the stock formed the strong bottom and underwent an upward breakout by converting the 50-day MA resistance to support. All three indicators also showed bullish reversal signals.

The ADX(14) developed a fresh uptrend and the bullish crossover of MACD(12,26,9) in negative territory generated positive momentum in the rally. The highly oversold stochastic oscillator itself was the bullish reversal indication. On these notes, IBKC witnessed the bullish breakout and reached 70 levels. However, the indicators as well as the price rally could not sustain the bullish levels, and as a result, IBKC formed a lower high. The descending trendline drawn in Figure 1 shows the lower highs formed by the volatile price rally. Although the trendline looks like a neckline of an inverted head & shoulders pattern, the left and right shoulders are not clear. Therefore, you cannot consider the trendline to be a neckline. The second yellow oval shows a few bearish candles and doji candlesticks, suggesting lack of bullish hold on the price rally.

Currently, the stock has again retraced toward the 50-day MA support. Further, the price rally is likely to get stuck between the 50- and 200-day MA support/resistance zone. Once again the stock has entered the developing downtrend area at 22 levels. The MACD(12,26,9) is showing a bearish crossover but has not breached the zero line support. In addition, the full stochastic(14,3,3) is oversold and is ready to surge above 25 levels. Hence, the indicators are showing mixed signals which is likely to result in volatile consolidation for the next few weeks.

The price rally and the stochastic oscillator are forming lower highs, suggesting downward pressure in IBKC (Figure 2). The highly overheated uptrend has plunged to 23 levels; however, the selling pressure has not turned stronger to grab the trend. The MACD(12,26,9) is frequently changing direction in positive territory. The momentum oscillator is ready to slip below 70 levels. Hence, you can anticipate that IBKC will continue its downward journey without giving any trading opportunity to buyers and sellers.

Chaitali Mohile

Active trader in the Indian stock markets since 2003 and a full-time writer. Trading is largely based upon technical analysis.